"I have withdrawn because ineligible candidates and non-financial members of the ALP have been given special dispensation to stand for pre-selection and a truncated rank-and-file process has been put in place," Ms Willis said in a statement.

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Ms Willis said it was important that the candidate for the seat was a woman, in line with Labor's affirmative action policy stating that 40 per cent of candidates for winnable seats must be women.

"At the forthcoming election, I believe it is extremely important for the ALP to win and to give itself the best chance by endorsing strong candidates imbued with Labor values who know the area they are seeking to represent."

Her decision to withdraw clears the way for Joanne Ryan, a local school principal backed by former prime minister Julia Gillard.

Ms Ryan says she has been a member since 1996, but failed to renew in 2010 when he partner underwent quadruple bypass heart surgery and she was appointed acting principal of a high school in the electorate.

It is understood Prime Minister Kevin Rudd has also thrown his weight behind Ms Ryan, with sources close to Mr Rudd saying he had decided to support Ms Gillard's choice out of respect for the former prime minister and because she was a strong local candidate.

It follows a short-lived but highly publicised bid for the seat by diplomat Lisa Clutterham, a South Australian who has no association with the local area or Melbourne.

Kimberley Kitching, a Health Services Union lawyer backed by Education Minister Bill Shorten, has also withdrawn. Ms Kitching is instead likely to face a difficult fight for a third Victorian senate position, which is being vacated by David Feeney, who will contest the seat of Batman.

Labor's national executive met on the weekend to discuss fast-tracking the pre-selection process ahead of the looming election, with Mr Rudd insisting on a local rank-and-file vote.

Meanwhile on Monday, ALP national secretary George Wright confirmed that Labor's candidate for the Sydney seat of Bennelong had been sacked and flagged the powerful national executive would decide the replacement.

With Ryde councillor Jeffrey Salvestro-Martin due to front the NSW ICAC inquiry on Monday, the ALP national executive considered it was ''no longer viable'' to endorse him as their candidate for Bennelong.

Mr Wright said the national executive would immediately re-open nominations for the seat currently held by Liberal MP John Alexander.

''A ballot of voting members of the national executive, if necessary, will be conducted ... on Tuesday 23 July to preselect Labor's candidate for this important seat," he said.